Monday, April 28, 2014

The U.S. Court of Appeals for the Ninth Circuit recently held appellate jurisdiction existed under 28 U.S.C. § 1291 because, in the absence of a settlement, a class plaintiff’s stipulated dismissal with prejudice of claims against a home improvement retailer does not destroy the adversity in that judgment necessary to support an appeal.

The Ninth Circuit also affirmed the denial of class certification because the district court did not abuse its discretion in holding that the proposed classes that the Plaintiff was capable of representing did not meet the requirement that common questions predominated over individual issues under Fed. R. Civ. P. 23(b)(3). More specifically, the factual circumstances surrounding whether a customer had knowledge of the Retailer’s damage waiver charge was optional required individual determinations, which precluded class treatment.

The Plaintiff appealed from the stipulated dismissal with prejudice of his putative class-action claims against the Retailer. He alleges that the Retailer automatically imposed a ten percent surcharge for a damage waiver on tool rentals in its California stores, and the Retailer’s failure to inform customers of their ability to decline the surcharge was a violation of California’s Unfair Competition Law (“UCL”), the California Consumer Legal Remedies Act (“CLRA”), and common-law theories of unjust enrichment.

When the Retailer rents tools to customers, it offers a “damage waiver.” The damage waiver allows the customer to avoid liability if a tool is damaged during the period of the rental. The Plaintiff alleged that when he rented a tool from the Retailer, he purchased the damage waiver without notice that it was optional. He further alleged that the Retailer does not tell customers that this waiver is an optional add-on. He claims that the cost of the waiver is automatically added to the rental price. The Retailer did not deny that its computers default to adding the damage waiver to a customer’s receipt, but customers are told of the optional nature of the waiver in three ways: 1) by the sales associate, 2) by signs posted in its stores, and 3) the final sales contract.

The district court denied Plaintiff’s motion for class certification, concluding that the proposed class was not ascertainable and that Plaintiff did not meet the commonality, typicality, and adequacy of representation requirements of Fed. R. Civ. P. 23(a).

Plaintiff then stipulated with the Retailer to dismiss the action with prejudice, intending to appeal the denial of class certification. In the stipulation, the Retailer contested the Plaintiff’s ability to appeal. The district court dismissed the action under Rule 41(a)(2), and the Plaintiff filed a timely notice of appeal.

The Retailer challenged appellate jurisdiction, relying on the Ninth Circuit’s ruling in Seidman v. City of Beverly Hills, 785 F.2d 1447 (9th Cir. 1986). In Seidman, the Ninth Circuit concluded that it had no jurisdiction to hear an appeal from a stipulated dismissal of a putative class action after the lead plaintiff settled his individual claims against the defendant. Id. at 1447–48.

However, the Ninth Circuit distinguished Seidman. Under Seidman, a final judgment must be adverse to a party in order to be appealable. Id. at 1448. While a stipulated dismissal pursuant to a settlement does not have the adversity required for appellate jurisdiction, absent a settlement, a stipulation alone does not destroy that adversity. See Coursen v. A.H. Robins, Co., Inc., 764 F.2d 1329 (9th Cir. 1985).

Here, the Ninth Circuit noted there was no allegation that the parties have entered into a settlement. Rather, the Plaintiff voluntarily stipulated to the dismissal of his complaint with prejudice. The Ninth Circuit concluded that the stipulated dismissal was sufficiently adverse to allow him to appeal.

The Ninth Circuit began its substantive analysis of the class issues by examining Rule 23. As you may recall, a putative class-action plaintiff has the burden of showing that his or her claim meets the requirements of Rule 23. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).

The Plaintiff argued that each of his proposed classes fall under Rule 23(b)(3), which required him to “demonstrate the superiority of maintaining a class action and show ‘that the questions of law and fact common to class members predominate over any questions affecting only individual members.’” Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 589 (9th Cir. 2012). To meet this requirement, the common questions must be “a significant aspect of the case . . . [that] can be resolved for all members of the class in a single adjudication.” Id.

The Ninth Circuit then examined the UCL claim. As you may recall, the UCL bans “unlawful, unfair or fraudulent business act[s] or practice[s] and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. The UCL focuses on the perpetrator’s behavior; a plaintiff must show only that members of the public are likely to be deceived. In re Tobacco II Cases, 46 Cal. 4th 298, 312, 207 P.3d 20, 29–30, 93 (2009).

The Ninth Circuit noted, the question of likely deception does not automatically translate into a class-wide question. In a recent case, the Ninth Circuit held that class certification of UCL claims is available only to those class members who were actually exposed to the business practices at issue. Mazza, 666 F.3d at 595–96.

In Mazza, the Ninth Circuit reversed class certification on a claim against a car company that allegedly made deceptive and misleading claims about a particular brake system. Id. at 585–88. In distinguishing Mazza from Stearns (and Tobacco II), the Ninth Circuit relied on two crucial facts about the car company’s advertising program: first, that it did not constitute a fraudulent advertising campaign; and second, that its advertising materials do not deny that limitations existed. Id. at 596. It was “unreasonable to presume” that all class members were exposed to the manufacturer’s misleading statements, and that without such exposure, consumers were not likely to be deceived. Id.

The Ninth Circuit found that the instant action was similar to Mazza. The Plaintiff had not alleged that all of the members of his proposed class were exposed to the Retailer’s alleged deceptive practices. Each of the five contracts used by the Retailer required an independent legal analysis to determine whether the language and design of that contract did or did not suffice to alert customers that the damage waiver was an optional purchase, and thereby did or did not expose that group of customers to a potentially misleading or deceptive statement. Accordingly, the Ninth Circuit upheld the district court’s determination that any common questions shared by Plaintiff’s primary class do not predominate over the individual questions of contract interpretation.

With respect to subclass one - each member of which rented tools under the first contract - the Ninth Circuit found that Plaintiff similarly had not alleged that each individual was exposed to the same misrepresentations or deceptions. The Ninth Circuit further noted that the existence and content of signs within the stores alerting customers of the optional damage waiver was a crucial issue, which the district court reasonably held must be resolved on an individual rather than a class-wide basis.

Likewise, oral notice given by the Retailer’s employees about the nature of the damage waiver during a particular rental transaction constitutes a unique occurrence. It was not an abuse of discretion for the district court to determine that maintaining a cause of action based on those statements would require each individual consumer to show that he or she had personally been exposed to misleading information. See In re LifeUSA Holding, Inc., 242 F.3d 136, 145–46 (3rd Cir. 2001); Wang v. Chinese Daily News, 709 F.3d 829, 835 (9th Cir. 2013).

The Ninth Circuit next examined Plaintiff’s CLRA claim, which provides a cause of action for “unfair methods of competition and unfair or deceptive acts or practices” in consumer sales. Cal. Civ. Code § 1770. Unlike the UCL, the CLRA demands that each potential class member have both an actual injury and that the injury was caused by the challenged practice. Steroid Hormone Product Cases, 181 Cal. App. 4th 145, 155–56 (2010). However, if a “material misrepresentation ha[s] been made to the entire class, an inference of reliance arises as to the class.” Stearns, 655 F.3d at 1022.

Because the contracts used by the Retailer at different times contained distinct terms, the question of whether a material misrepresentation was made to the entire class requires an individualized determination that the district court reasonably found predominates over any common questions. Accordingly, the Ninth Circuit affirmed dismissal of the CLRA claim for the primary class.

Whether the Retailer’s receipt of funds for the damage waiver was unjust or inequitable, thereby justifying restitution, depends on whether the Retailer told its tool rental customers that the waiver was an optional product. As explained above, this determination required individualized determinations.

As with the UCL and CLRA claims, the individual issues could reasonably be found to predominate over the common questions in the common-law claims, and the Ninth Circuit affirmed the district court’s dismissal of both the primary class and proposed subclass one.

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